How Stripe Became a $10B Challenger to PayPal

This week when I did key research with the business I took one of their suggestions and it is the global payments company that is at war with PayPal, where they come from, where they are going and how they got to a ten billion dollar valuation. I'm going to tell you about the global payments company that seemingly came out of nowhere, but is actually about eight years old. First, I'll walk you through the history, then I'll explain the features of their products, and then I'll explain where I think they're headed, including a path that has reached amazing valuations, specifically a ten billion dollar brand that recently surpassed.

Let's start with the story of brothers John and Patrick Collison, who have a dream like many entrepreneurs do, as many brothers have, and want to build an online payments company. They see opportunities to help people who are building an e-commerce company. Work in your company. Work on your product. Work on the essence of what you are doing. you don't have to spend a lot of time on the complicated business of building relationships with payment processing exchange companies, banks, all the things you need to do to receive money over the internet, and if you're a company, maybe like lyft or uber , give you your money back. to the people who are in your market, like your delivery people, these are many of the problems that people like instacart have, plus, the money must arrive quickly, accurately, without fraud, the money must leave quickly, accurately, no scam, and people like lyft want to create a great Lyft app with maps and features so you and I can use it.

They don't want to worry about all the infrastructure needed to integrate payments into their business and that's exactly the problem the Collison brothers have. they set out to solve with

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in 2010, what do they do, they enter Y Combinator, my favorite accelerator, and graduate with some seed funding a year later, raise two million dollars from Peter Thiel, oh, there's a familiar name in the payments industry. and andreessen horowitz, so now they have very credible money that has reached two million dollars, you could call it a kind of early seed coming out of the Y Combinator incubator, it's not really that serious, but it doesn't really matter.

I got credibility from Y Combinator and super credibility thanks to some votes of confidence from two of Silicon Valley's best early-stage investors. At the time they were in a beta version. What a beta means is that a select number of companies are invited to test and use it. the system to receive money and withdraw money to the markets or on their e-commerce websites then they went live in September 2011 and to be exact, I think it was September 29, 2011, they went live in public attracting more clients and more developers. In more companies they do not want to use it and now they are effectively public when leaving the beta version.

Now the beta is important because it can be a controlled environment where you say to someone, if you're going to be in my beta, you have to accept. some growing pains in my software or my product platform in return you can use it early and be part of the beta and a company might say well you know what I'll do because I like the problems you're solving. It will be beneficial for me, so I would like to be part of that beta. This is how developer betas work. There are also beta versions that maybe are products for you and me as consumers.

You may have been using Google Maps for a long time and have seen the beta version of Google Maps. icon right at the top of the page for years, however, beta versions are usually a strictly controlled period with the start, middle and end of the test with full awareness on the part of the people in the test that this is not the final product, this is the almost final product and what you do in the beta will be essential to bring the first one to market, which happened on September 29, 2011. Well, they got off to a tremendous start and acquired a great customer base in terms of companies that wanted to use it and then in February, they did.

They got good traction, some new customers, and raised eighteen million dollars led by Sequoia. They now have a very high-quality set of investors along with the notoriety that comes with being a successful Y Combinator graduate. In a short time, they have only been there for a few months. another 20 million Sequoia companies are involved again and this time the General Catalyst and AMEX companies, that's right, the Amex companies, that is, the American Express companies, sometimes referred to as corporate venture capital when a company established as American Express, whose core business is not investing, leaves out the fun and makes investments in it that will bring new technology or products or services to American Express and when they invest in this, they will be within what they see developing, so I imagine that American Express would like to have access to that technology. or services before other credit card or financial services institutions raised another 20 million and now they have 50 million dollars raised during this time, we move forward and they just get traction, traction, traction and a little less than two years later. in January of the 14th they raised $80 million now how much traction at the time they raised the $80 million the investment community seemed to think they were worth one point seven billion dollars the momentum is building the validation is in place and things are really They improve When you're in marketplaces like Lyft or Uber or what they're doing, your proliferation can follow what's called an exponential J-shaped curve very, very quickly and that drives valuation because from the validation and traction of your product in a short amount.

Over time, extreme valuations arrive that are executed quickly. In Silicon Valley, a billion-dollar valuation is known as unicorn status, and as we can see, they moved past that quickly, how much momentum and how quickly. Let's take a look at what happened with the The next two tranches of financing after the January tranche with a valuation of $1.7 billion validating them as a member of the Unicorn Club raised $70 million. General catalysts led that and they added to their previous investment a valuation of $3.4 billion which is double the valuation at the beginning of that year and just a few months later they raised a hundred million dollars at a valuation of four point nine billion of dollars, that's a big number and there's only one word for that and damn, that's a huge increase in valuation in such a short time. is on Elon Musk's rocket to Mars, well, they made that money last just under two years and then on November 16, they raised another one hundred and fifty million dollars at a valuation of nine billion dollars, which is Maybe it's almost good for another damn Capital.

G was part of its capital G is a venture fund within Google. Remember I mentioned Amex and corporate venture capital. If you take a look, you have the G visa for equity and the Amex strategic investors were now in the boat along with the traditional venture investors. What is the difference? A strategic investor is generally referred to as a company that is not normally engaged in the financial business but for whom its product or service is strategic to its vision of the future; In other words, venture capital investors provide startup venture financing in tranches to startups to grow them going forward. a financial return when you get Amex, Visa and Google involved, there is also a financial return because they are carefully managing their CVC corporate venture capital fund that I mentioned a minute ago, but they are also looking for strategic value to be brought to them. in services that can source and improve their own product, that's the difference between a strategic investor and a venture investor, and strategic investors usually come in later and can often be a key driver for the future because they could be a customer. they can also have an early date with someone who will be a buyer and write a check for the entire company later, so that's the story of how they accumulated tremendous venture capital partners and some great strategic partners now if they are facing - Head over to PayPal Tom, why do you think they were successful?

Wouldn't PayPal be the existing option and simply crush all competitors? Well, you might think that, but it's not that easy. There are many ways a fast follower can improve what a fast follower is nothing more than a second player in the market that watches over the leader and does everything the leader does, but also adds things to it and improves the product in similar ways. When drafting and racing, get behind the other person, let them push. get the wind out of the way and pass them on when you get the chance, it's a lot like that in business; in other words, if you look at how PayPal works and you see things that were problems for PayPal, maybe data leak fraud and things like that, and you say aha, if I build something similar to them, I better address those problems very successfully to to be able to say, well, I'm better than PayPal because of these things that just happened.

I'm going to talk about the things that I think set them apart because there are nuances. Plus, that makes a big difference if you simply put the fees and rates next to each other. PayPal and Stripe are charging businesses to use their service. Really very similar rates. There are differences in PayPal international. This strip may not be the smallest. There are differences, but for the core marketplaces and core rates, it's very similar to one of the things Stripe did to differentiate them is that they said we want to focus on developers. What does that mean they want a customer like?

OpenTable or lyft or Kickstarter or instacart or Yelp want you to work on their offering without worrying about payment infrastructure, they want this to integrate very easily but they also wanted it to be adaptable, so one solution is to do it in a box. and you say here it's plugging it into your website, but what if the developer wants some variation and wants to do some adaptive programming to a core piece of code? Well, they allow you to do that and they also allow for what's called data portability. Now, this is what the data contains. portability ends eventually when you have Stripe integrated with your website, you are going to create a library of customer names, addresses, billing information and credit card numbers, X operations, what do you do with all that?

You protect it with your life and you better have it. Stripe provides it to you in a very strict security environment, but what if you decide you don't like Stripe anymore and you just want to take it and go to PayPal or go to some other processor that you're going to work with and integrate it? with your website, well the guys at Stripe said you know what we believe in data portability for two reasons. It is a point of sale. If you don't like Stripe, you can take your credit card information and move it to another processor.

Second, apply pressure.

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to provide great service great features great support every minute of every day because they have given you the ability to have the keys to your own handcuffs PayPal is legendary for being very meticulous about freezing your data and refusing to let people carry the information from the credit card to a new processor in other words, PayPal is like Hotel California, you can pay any time you want, but you can never leave, while Stripe says wait, I'll let you have data portability and it's up to me deliver every day to make sure you stay.

That puts pressure on everyone within Stripe to make sure every website and integration they make is in the hands of happy customers. I think we can agree that that shows great confidence in the company, the people, and the product. to give you that data portability option, I also think there are what I call a lot of little ones, let's take a look at it, there are a few subproducts that make up the overall offering, one of which is Sigma, it's a reporting tool, what's the difference between a reporting tool and a reporting system a reporting system is usually written in german you can't have disfund or disfund or disfund and that's all you get and it's very strict so i'm joking about the german but you understand what I say.

I mean you can have reports like this, but you can't customize them if they're not perfect for you. Sorry, there's the reporting library, that's what you get with what they did with Sigma. They create a reporting tool so you can get some standardized reports, but if you want to go in and tailor the query, which is just that fancy word for the request you're making to the database to give you a report, they let you do it and they give you a lot of power over it, but they make it simple. The second thing they offer is the radar, which is a fraud confirmation and validation tool, which is essential in the modern world we live in, so it is key toFor a small business to create an online marketplace and they don't have time to deal with fraud, they have to choose a partner who will hold you steady because of the customer's trust in you, do you know what happens if your rise and customer's trust Do they explode the first year you are there because of the credit card? concerns, guess what you've done, people like you and me are going to say, hey, I heard about that, I don't know if I trust those guys properly, it all has to be there.

Radar is that product to provide a heavy-handed response to fraud and give you great controls so that your bank has confidence in your business and the customers who use it have confidence in the business. So we come to Atlas, it's a company in a box with end-to-end e-commerce built into what it's all about. What would happen if you took one of those services that help you create your company? Hey, in five minutes you can create an LLC or this. That's pretty simple, but you need it to be for an e-commerce company. What if you had a lawyer?

That's already set up to do that right next to all the data integration and all the tools you need to add eCommerce to your site, that's what Atlas is business formation banking agreements, everything you need along with the powerful Stripe product to offer payments and be able to pay vendors, but just like an instant cart, receive money from a consumer who purchases the groceries and pay the driver who delivers the groceries, which is a marketplace , being able to put that technology into an instant cart to build the marketplace and all the corporate formation documents that and Instacart would need, all in one place, so if you have a dream idea about how to build an eCommerce system or a market like that, Stripe becomes the only place you can go that also gives you powerful reporting options, powerful fraud protection. and a developer-centric model so you can tailor it a little bit to what your vision is for your company, but it's still pretty easy for the original vision that the Collison brothers set out, which is to build your company, you build your product and we build it. we will help do everything. of ecommerce integration easier, don't waste time on that, spend time on your vision for instacart or whatever you're building on top of atlas recently, like a few weeks ago, they announced that Stripe will also offer cards. the cards can be branded with an affinity group, which is a fancy way of saying a white label on the front, so if you wanted to put instacart or Yelp or hand out rooooar DocuSign, whatever you wanted to put on the front of the card, you could do it and it will also offer some benefits: a percentage of the normal credit card feed that is collected will go back to the customer who has the name on the front of the card stripes, so now they are actually offering credit cards that will integrate with the striping system, but can be used elsewhere, which I think is a very natural progression to move forward and be successful in offering your own credit card and, looking back, realize Note that you have a couple of strategic investors in Visa and American Express.

It could also be a look at a potential buyer in the future. Imagine if a commercial bank or Visa bought them for what would now probably be between eleven and thirteen billion dollars and incorporated them into the services they have for e-commerce companies. Right now I think it's a powerful combination because the merchant services and things that have been added to them at some of the merchant banks are nothing compared to the power that Stripe can bring to that relationship, so if your Chase or your Citibank o Wells Fargo really It doesn't matter, Wells Fargo, go back and look at the case study.

Did you know that the body written for fraud is Wells Fargo? I would never consult them again. I would never see the case study. We'll put the link there so you can see it. but imagine one of those commercial banks adding that to their services and buying this, it's very, very natural, which shows how these things can go from one extreme to another. Remember a long time ago it was eBay that bought PayPal once because PayPal was doing such a phenomenal job helping eBay make those transactions. Now, they later respond from eBay, but you can see how relationships, especially in financial services, can quickly go from a business relationship to an acquisition.

Let's back up a second. Let's talk about entrepreneurs and some lessons we can learn. By this I mean, what can you learn from this? I like to say, if you run a T-shirt company in Berlin, a gelatin company in Belarus, or you're making furniture in Indianapolis, Indiana, what can you learn from this? Well, no. You don't always have to be first, sometimes be second and choose something that you're going to focus on. Stripe is remarkably similar to PayPal, but when you back it up and delete it, we're going to focus on developers and do it incredibly well. better, we will give you a reporting tool that will be better and so a lot of little things with a core promise sometimes is what you can do to compete with someone who is established in the market, think about pizza, how many pizzerias is there in an average city?

Many of them, there are the great ones, you already know the national change that we know and I am not going to give them any affection by mentioning them, but then there are the dads and moms who maybe do this a little better and who comply a little. a little faster or maybe they have a loyalty program that is a little better. There are little things you can do to have a lot of little things that add up when your business can be substantially similar. Remember that just because it's already done doesn't mean you can't be a fast follower and it doesn't take a technological leap to be such a fast follower and I believe in that band even though it started years after PayPal and on paper, If you just compare the rates right now, you say well, these are very, very similar.

I think all these little advantages add up to make a clear choice and that if you're going to build a new marketplace or you're going to build e-commerce on it, it would be striped, that's what I think about stripe, but what do you think, leave some Comment below and tell me what you think about this case study and also let me know who you would like me to cover in a case study in the coming weeks. I listen to you and accept suggestions. You can also find me on social media on Facebook and Twitter. I'm Tom Ellsworth and on Instagram I'm Ellsworth dot Thomas.

Remember we're on a mission to reach one million subscribers, so subscribe to the value team because when we get there you will. will be the first annual value entertainment entrepreneur conference with Patrick, I bet David for once I'm taller than him, a servant, the business doctor and other leaders who will make him better, his company and the people he works with. It plays even better until then. I'm Tom Ellsworth. the biz doc and I hope I have left you better than I found you